Business Incentives and Environment
The Zambian Government has designed a package of incentives aimed at specifically establishing a suitable environment for increased domestic industrial growth, export promotion, the development of market oriented production management and private sector development.
Income tax allowances are extended to a number of sectors, including agriculture, manufacturing, mining and the hospitality industry. Investors pay 15 percent income tax on income from non-traditional exports and one-seventh of the normal 35 percent corporate income tax rate the first five years of operation for rural enterprises. Income from farming is taxed at 15 percent. Building used for manufacturing, mining or hotels qualify for a wear and tear allowance of 5 percent of the cost, plus an initial allowance of 10 percent of the cost in the in which the building is first used.
Export incentives are also offered. Special exemption from duty and sales tax on imports and machinery is extended to exporters of non-traditional products with net foreign exchange earnings in excess of 25 percent of the gross annual earnings, and agro-related products for export.
Customs duty has been reduced on a wide range of raw materials and selected intermediate goods used in manufacturing as well as various other products affecting different sectors of the economy.
For foreign investors, there is no restriction on the amount of interest, profit, dividends, management fees, technical fees, and royalties that they are allowed to repatriate. In addition, foreign nationals do not have difficulties in externalizing income earned while in Zambia. Borrowing for the purpose of investing in a company is treated on a case by case basis although some local financiers demand that will only provide loans to non residents if a wholly owned Zambian company is involved in the business.
Investments are protected and private property rights guaranteed through the Investment Act, which states that investment may not be expropriated unless parliament has passed an act relating to the compulsory acquisition of that property, in which event full compensation at market value and free transfer of the funds in the currency in which the investment was made is guaranteed.
Business Incentives under the Zambia Development Act
In an effort to address the high cost of doing business in Zambia and to maximize business potential and to safeguard the interests of both local and foreign investors, the Government has repealed the Privatization Act, Investment Act; the Small Enterprises Development Act, the Export Processing Act and the Export Development Act and in their place has enacted the Zambia Development Agency Act which has facilitated the operationalization of the Zambia Development Agency (ZDA).
Operational from January 2007, the ZDA has now taken over the functions of the former Zambia Investment Centre, Zambia Privatization Agency, Export Board of Zambia, Small Enterprise Development Board, and Economic Processing Zones Authority. The primary function of the Agency is to further the economic development of Zambia by promoting efficiency, investment and competitiveness in business and promoting exports from Zambia. It is a one stop facility which will ensure, among others, client focus, dialogue with the private sector and create public sector support for business. It will attract and facilitate investment, provide and facilitate support to micro and small business enterprises, promote exports, streamline bureaucratic procedures and requirements faced by investors, encourage measures to increase the country' capacity to trade and ensure that the private sector takes advantage of and benefits from international and regional trade agreements.
In addition to the numerous incentives that the Zambian Government has already put in place, the Zambia Development Act has added the following incentives:
- An investor investing not less than US $ 500,000 or the equivalent in convertible currency, in a priority sector or product, is entitled to incentives as specified by or under the Income Tax Act or Customs and Excise Act.
- Any machinery or equipment acquired by (a) business enterprise conducting operations in apriority sector or in respect of priority products, or (b) a rural enterprise shall be exempt from customs duties as specified by or under the Customs and Excise Act
- An investor shall not be entitled to the incentives provided for under this Part unless the investor holds a licence, permit or certificate of registration under the ZDA Act.
- The relief or exemption from any tax or duty to which an investor is eligible under this Part shall be effected by the Commissioner General of the ZDA upon certifying that the investor has complied fully with this Act and any condition prescribed.
- Where a double taxation agreement exists, between Zambia and another country, foreign tax payable by an investor to the other country in respect of foreign income shall be determined under that agreement.
The 2007 budget provided further incentives to encourage investment as follows:
- Zero percent tax rate on dividends for companies operating in the priority sector and/or Multi-Facility Economic Zone (MFEZ) under the ZDA Act for a period of five years from the year of first declaration of dividends;
- Zero percent on profits made by companies operating in the priority sector and/or MFEZ for a period of five years from the first year profits are made. For years 6 to 8, only 50 percent of the profits should be taxed and for years 9 and 10, 75 percent of profits should be taxed;
- Zero percent import duty rate on raw materials, capital goods, machinery including trucks and specialized motor vehicles for five years for enterprises operating in the MFEZ; and
- Deferment of VAT on machinery and equipment including trucks and specialized motor vehicles imported for investment in MFEZ and/or priority sector.
Application for and grant of Licences, Permits and Certificate of Registration
- A person who wishes to (a) develop premises as a multi-facility economic zone; (b) export prescribed goods and services; (c) invest in any business enterprise; (d) register a micro or small business enterprise, education enterprise, skills training enterprise or rural business enterprise or (e) operate a business enterprise in a multi-facility economic zone, shall submit an application to the Zambia Development Agency (ZDA) Board in a prescribed form and the application shall be accompanied by a prescribed fee and such documents and information as may be required.
- The Board shall, within 14 days of the submission of an application under subsection (1), approve or refuse to approve the application and immediately thereafter, communicate the approval or refusal to the applicant.
- In considering an application for a licence, permit or certificate of registration the Board shall have regard to (a) the need to promote economic development and growth in Zambia (b) the extent to which the proposed investment will lead to the creation of employment opportunities and the development of human resources (c) the degree to which the project is export oriented (d) the possibility of the transfer of technology (e) any other considerations that the Board considers appropriate.
- An investor shall, without delay, inform the Agency of any material change in the information or particulars furnished by the investor when the investor applies for a licence, permit or certificate of registration.
- A licence, permit or certificate of registration shall be valid for a period of ten years from the date of issue, during which period the investor shall implement proposed investment.
- The Board may suspend or revoke a licence, permit or certificate or registration, after due investigation where the investor is given an opportunity to be heard, if the investor (a) obtained a the licence, permit or certificate of registration on the basis of fraud, negligent misrepresentation or any false or misleading statement (b) assigns, cedes or otherwise transfers the licence, permit or certificate of registration to another person without prior approval of the Board (c) fails without reasonable explanation to implement the investment described in the licence, permit, or certificate of registration within the period stipulated or any extension in respect of an initial period stipulated (d(breaches or fails to comply with any terms or conditions of the licence, permit or certificate of registrations or (e) is convicted of an offence under the ZDA Act.
Major Banks
Major banks facilitating commercial activities in Zambia include Standard Chartered Bank, Barclays Bank, Stanbic, Zambia National Commercial Bank, Citibank, and Finance Bank. Others are Cavmont Merchant Bank, Investrust Merchant Bank, Bank of China and Indo-Zambia Bank.
Lusaka Stock Exchange
A number of companies are listed on the Lusaka Stock Exchange (LuSE) which has been playing a key role in fostering economic growth in Zambia in recent years. LuSE was established as part of the economic transformation of Zambian government's economic reform programme to develop the financial and capital market in order to support the private sector. It is based on the most current international standards and practices. In order to ensure investor confidence, the rules and listings on the LuSE are backed by relevant legislation under the Securities Act which regulates the Zambian Securities market.
Several incentives are offered to investors by LuSE in order to promote rapid development of the capital market in Zambia. The unified market on LuSE consists of both bonds and equities. The Bond markets comprise both government and corporate bonds.